The Average Black Family Would Need 228 Years to Build the Wealth of a White Family Today

Just as past public policies created the racial wealth gap, current policy widens it.

August 8, 2016

Job seekers stand in line to attend the Dr. Martin Luther King Jr. career fair held by the New York State Department of Labor. (Reuters / Lucas Jackson)

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If current economic trends continue, the average black household will need 228 years to accumulate as much wealth as their white counterparts hold today. For the average Latino family, it will take 84 years. Absent significant policy interventions, or a seismic change in the American economy, people of color will never close the gap.

Those are the key findings of a new study of the racial wealth-gap released this week by the Institute for Policy Studies (IPS) and the Corporation For Economic Development (CFED). They looked at trends in household wealth from 1983 to 2013—a 30-year period that captured the rise of Reaganomics, expanded international trade and two major financial crashes fueled by bubbles in the tech sector and housing prices. The authors found that the average wealth of white households increased by 84 percent during those three decades, three times the gains African-American families saw and 1.2 times the rate of growth for Latino families.

To put that in perspective, the wealthiest Americans—members of the Forbes 400 list—saw their net worths increase by 736 percent during that period, on average.

If those trends persist for another 30 years, the average white family’s net worth will grow by $18,000 per year, but black and Hispanic households would only see theirs grow by $750 and $2,250 per year, respectively.

By the time the Fair Housing Act made housing discrimination illegal, people of color had missed out on decades of robust growth.

“[Economist] Thomas Picketty said that, left uninterrupted, we would move toward a hereditary aristocracy of wealth,” says Chuck Collins, one of the study’s authors. “What he didn’t say is that in the United States, that would be almost entirely a white aristocracy of wealth.”

The study looked at financial wealth—stocks, bonds, and the like—real estate and business capital, but excluded durable goods like cars and consumer appliances. Like other studies of the racial wealth gap, it excluded Asian Americans and Pacific Islanders, Native Americans, and other people of color because of limitations in the underlying data.

Recent years have brought a heightened focus on income inequality, but while they’re related, wealth inequality is far more pronounced. According to a study published by Demos last year, the median income for whites in 2011 was around 50 percent higher than it was for blacks and Latinos, but whites’ median household wealth was around 16 times greater.

It took 400 years of slavery, segregation, and institutionalized discrimination in the labor and housing markets to build the wealth gap that we see today. For example, by the time the Fair Housing Act made discrimination in housing illegal in 1968, people of color had missed out on decades of robust growth in the housing markets (and much of the next generation missed out on that wealth building in the 20 years it took to fully implement the law). “The racial wealth divide is how the past shows up in the present,” Chuck Collins tells The Nation. “We have a deep legacy of wealth inequality that undermines the whole idea that we have a meritocracy—that there’s an equal playing field.”

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The racial wealth gap continues to grow not only because of income inequality—whites have more dollars to sock away—but because accumulated wealth is a mechanism for transmitting economic success from generation to generation. It’s a vicious cycle—poor communities have limited tax bases to fund their public-school systems, which lead to sharp disparities in educational quality. A family with some assets can help their kids pay for an education or put a down payment on a first home or kick them some seed money to start a small business. All of those things help the next generation climb the economic ladder. Wealth also provides an important cushion against unexpected shocks—things like temporary job losses or unexpected medical bills. If you’ve got some wealth, you can weather the storm without getting over your head in debt.

According to Princeton University sociologist Dalton Conley, the wealth of a child’s family is the single greatest predictor of that child’s future economic prospects. Conley, whose data did include things like cars and household goods, found that even white households hovering around the poverty line have a net worth of $10,000 to $15,000, but the typical black family at that income level will often be under water, with a negative net worth. In many cases, that means turning to usurious predatory lenders to stay afloat—an added expense of being poor.

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A truly perverse aspect of this story is that just as past public policies created the racial wealth gap, current policy continues to widen it. The federal government spends a fortune subsidizing wealth-building activities like paying for college, saving for retirement or buying a home, but most of those dollars go to people who already have wealth. Since 1994, government spending on wealth-building has more than tripled—from $200 billion in 1994 to $660 billion last year—according to the IPS/CFED study. The costliest of those subsidies is the home-mortgage tax deduction, and a 2013 study by the National Priorities Project found that 77 percent of those benefits go to households with annual incomes between $75,000 and $500,000. Similarly, an estimated two-thirds of all public subsidies for retirement savings go to those with incomes in the top 20 percent of the distribution. We’re spending a fortune on wealth building, but very little of it ends up bolstering the net worths of poor people and people of color.

The persistence—and growth—of the racial gap provides a powerful rationale for reparations for African Americans, who are the furthest behind whites in accumulating wealth and have endured the most brutal forms of racism. Advocates like William Darity Jr., a professor of African-American studies and economics at Duke University, picture a program of reparations as a sort of Marshall Plan for poor communities of color, with major investments in health care and education and local infrastructure and seed money for small-business start-ups.

But the politics of reparations are fraught, and they wouldn’t help close the wealth gap for other people of color, much less for poor whites. The IPS/CFED report calls for a number of policies that would rationalize federal spending on wealth-building activities so that they target those who need the help. They include one proposal that’s been around for a while: giving every baby born in the United States a savings account with a modest sum, and then using public funds to match what low-income households are able to save. When a young person hits 18, the accounts could then be used to help finance a college education, or to buy a first home or start a new business. Any remaining funds would be dedicated to retirement.

There’s certainly room to debate the best policies for addressing the racial wealth gap, but the report published this week confirms that if we do nothing it will just continue to grow, and any semblance of a level economic playing field in the United States will remain ever elusive.

If our politicians, mainly Republicans, do not make radical changes for the better when it comes to help the majority of hard working Americans we certainly end being part of the group of developing countries.

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Eddie F says:

August 12, 2016 at 2:26 pm

I would note that the birth savings account was, I believe, suggested by Richard Nixon.

As a Democrat, I always detested Nixon, but that shows how far the Republican party has travelled.

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Fred Carusosays:

August 11, 2016 at 10:41 pm

History repeats itself. Just as the Republican party abandoned the African Americans after a short "reconstruction" of the South, and found out they needed Southern votes in the newfound Union, in the same way, the Democratic Party abandoned the poor and [mostly] African Americans, post New Deal and after the Kennedy-Johnson age of civil rights.

The Democratic Party quietly abandoned the African Americans, "allowing" conservatives to jam through get tough drug laws, three strikes laws, and the deceptively misnamed "welfare reform" which in itself, fueled illegal activity by people desperately hungry and homeless. The prison industry was where the smart money was invested.

Of course, the Democrats continued to point to past civil rights work in their rhetoric, while partnering with the two party monopoly, reminding us "it could be worse" if Republicans had their way, and cutting deals with those white devils, behind closed doors.

Bill Clinton was politically insecure, and he knew it. He won in 1992, his first term, with only 43% of the vote (19% of the votes was taken by a third party "fiscal conservative, Ross Perot.) He benefitted from the two party monopoly, which disallows runoffs. Days before his second term election, in October 1996, he signed a "welfare reform" pushed by neo-conservatives, in fear of losing the "white" vote, the following month in the 1996 election.

The racist-right neo-cons pushed through some of the most draconian details in that bill and Bill had to go along out of fear of losing, so he let the racist-right wingers have "welfare reform" their way at the eleventh hour, in order to insure victory in the election, by picking up white votes.

The corporate media heaped nothing but praise upon him. We got fooled again, but it is taking more than three decades to get over the denial.

The fact that we have seen the poor black family deteriorate further is the evidently the result of Democratic Party legislative actions using their "lesser than two evils" rhetoric, since then. The Democratic Party operatives rely on that "greater evil" to make their evil look better. It is more of a partnership with the neo-cons, than a bone fide opposition.

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Robert Bornemansays:

August 10, 2016 at 3:51 pm

Too bad these studies limit themselves to focusing on "averages" instead of "medians". Certainly, "white" families would have more than "black" families (both in terms of median wealth and income), but adding in the 1% (which is predominantly counted as "white") skews the data absurdly and ignores how little the gains have been for the vast majority of "whites" further down the income and wealth ladder. The resultant narrative (by focusing on averages instead of medians) both prevents root problems from being addressed and perpetuates racial hostility and distrust.

These studies should also analyze the effect of housing versus income and look at the results with housing removed. We should stop talking incessantly about per capita GDP and talk about median increases in wealth. The incorporation of the super-rich into these equations (which ALSO needs to be brought up: disparities between median and mean) and the failure to analyze the medians relatively indicate a political agenda of divide and conquer is at work. That or just shoddy analytic research (which is more likely the case).

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Doug Barrsays:

August 9, 2016 at 4:21 pm

You will keep writing about inequality until it destroys us or we raze the vertical economy. http://thelastwhy.ca/poems/2012/12/13/economy.html

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Eddie F says:

August 12, 2016 at 2:30 pm

Cryptic comment. Say what you mean. Are you a racist?

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Nannette Crocesays:

August 9, 2016 at 3:11 pm

So, on the one hand we have Nancy Isenberg telling us how Bernie got it wrong by saying that poor blacks have it harder than poor whites. http://billmoyers.com/story/class-america-donald-trump/
Now this article tells us it's the other way around. My guess is both sets of research are somewhat skewed. E.g., doesn't it seem that the 736% increase in wealth among the Forbes 400 might have something to do with the supposed disparities between whites and blacks. IMO, the racial divisions constantly touted on both sides -- in different ways -- have served to divide the poor -- and Native Americans should be included -- and make the problem appear unsolvable. Let's first address the issue of poverty acros the board. After that we can address any remaining differences among races, if, indeed they still exist.

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Carolyn Mae Robesays:

August 9, 2016 at 2:45 pm

I like to think of education and "hard work" as a path out of poverty...The rags to riches stories still resonate. Mr. T who started out with only one million and changed that into billions. Or Hillary Clinton who was "broke" upon leaving the White House. Yet there are certainly wealthy people who actually go broke, and immigrants who start out with literally nothing. Like Vietnamese boat people or other refugees. It would be interesting to see how they are doing over time. Some of them are not literate in any language, etc. I think education, if one has the opportunity to access it, can be helpful. Believe it or not, I have known poor people who live lives that are okay. But they had access to religious community, or family, or societal supports. Some were elderly and lacked resources. Not to minimize the pain of poverty, it is also sad to worship the Almighty dollar.

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Steven Keyessays:

August 9, 2016 at 1:56 pm

Correcting the condition is not elusive...the wealth inequality structural reality African Americans live in today took more than 400 years for the majority culture to create, implement, adjust, stabilize and ensure a consistent outcome. In every legislative action that has occurred over that period of time, the majority's wealth accumulation efforts were never penalized...they were always allowed to pass-on assets to the next generation WITHOUT including the liabilities that were created in order to create those assets.